How to Maximize Profits Subject to Cash Constraints

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Innovative ideas and different business practices can mean the difference between business survival and failure during times of low cash flow. While most businesses occasionally have times when their available cash is less than what the owner is comfortable with, the successful owner is able to maximize profits even with a low balance in the bank.

Expand Your Business

You can overcome cash constraints by cutting products or services that are not performing well and putting your efforts into providing others. A restaurant owner could determine that its delivery service is a cash drain due to having to keep drivers on the payroll even on nights with no orders. Instead of delivery, she could offer catering services. The advance notice of a catering order gives her time to schedule accordingly, and charging a deposit gives her the funds to purchase the items she needs for the order. According to the Small Business Administration, diversification can increase your profit margin.

Cash-Only Operation

Allowing your customers to pay later is not an option when you need cash. Refusing new credit accounts and limiting credit for existing customers can increase your cash flow. You must file Form 8300 with the IRS if you receive a payment in cash that is more than $10,000. If you must provide financing for customers, charging interest -- as allowed by your state -- can increase your profits on the transaction. If possible, give notice to current customers to lessen the hardship to their finances.

Renegotiate Payables

Asking suppliers for longer terms can increase your cash levels enough to make it through your a downturn. If your suppliers are unable to change your payable date permanently, ask for a temporary extension. This can enable you to collect your receivables before your payables are due. Talk to lenders about decreasing the interest rates on loans and credit cards. A consolidation loan can decrease your payment, but if you then make new charges on your old accounts you could find yourself facing a larger budget crisis in the future.

Considerations

Investors can help a business through a cash crisis. In addition to asking family or friends, consider talking to your employees about buying shares of your business. The profit sharing potential can improve employee production and increase overall profits. To ensure the protection of your ownership, talk with an attorney before selling shares. Consider a clause that requires buyers to offer you the first option to buy if they decide to sell their shares.

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About the Author

Specializing in business and finance, Lee Nichols began writing in 2002. Nichols holds a Bachelor of Arts in Web and Graphic Design and a Bachelor of Science in Business Administration from the University of Mississippi.

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